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Economies of scale in the chicken farming industry

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The Smythe chicken farm outside Little Rock, Arkansas, produces 25,000 chickens per month. Total cost of production at Smythe Farm is $28,000. Down the road are other farms. Faubus Farm produces 55,000 chickens a month, and total cost is $50,050. Mega Farm produces 100,000 chickens per month, at a total cost of $91,000. These data suggest that there are signified economies of scale in chicken production. Do you agree or disagree with this statement? Explain your answer.

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Solution Summary

This solution shows how to determine, given production and cost data, whether there are significant economies of scale in the chicken farming industry.

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Smythe's Average Total Cost (ATC) is $1.12 per chicken. Faubus' ATC is 91.8 cents. ...

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